The Front

Treading on the Taxpayer

Halliburton charges millions of dollars to U.S. taxpayers for Mercedes trucks that sit idle and unused in the Iraqi desert, according to an internal Pentagon memo. The memo was obtained by HalliburtonWatch, a project of Essential Information, the publisher of Multinational Monitor.

The memo, written on September 16, 2004 by the Baghdad branch manager of the Pentagon’s Defense Contract Audit Agency (DCAA), reports that Halliburton’s KBR subsidiary “procures and retains excess vehicles” under its troop support contract with the Army Corps of Engineers. The memo concludes that the excess vehicles result in “increased costs to the government.”

The total value of the vehicles under review was $300 million and included both purchased and leased vehicles.

The findings comport with a digital photograph obtained by HalliburtonWatch showing a large number of Mercedes trucks parked permanently at Camp Anaconda, Iraq. The photograph was obtained from a source in the federal government who reported that the trucks are, in the source’s words, “idle.” At a cost of $85,000 each, the trucks shown in the photograph are worth at least a few million dollars.

It is unclear how many idle or under-utilized KBR trucks are stored in Iraq because Halliburton does not have adequate utilization records that could show how often each vehicle is used. “KBR does not have an adequate system for determining the utilization of vehicles,” the DCAA memo states, adding that existing records appear to indicate “low utilization of vehicles.”

The DCAA official to whom the memo was addressed, Bill Daneke, says he is not authorized to comment on the issue, and referred all inquiries to Lt. Col. Rose-Ann L. Lynch in the Office of the Assistant Secretary of Defense for Public Affairs. Lt. Col. Lynch referred questions to Art Forster in the Congressional and Public Affairs Office of the Defense Contract Management Agency. Forster was not able to answer any questions and suggested a Freedom of Information request would be required to determine how the military concluded the issue.

Halliburton spokesperson Melissa Norcross does not specifically deny the allegations in the memo. In an e-mailed response to questions, she said, “For more than two years, KBR has been involved in numerous government audits relating to our work in Iraq, and we continue to cooperate with our customer and the appropriate government agencies to demonstrate that our work has been performed at a fair and reasonable cost and within the appropriate bounds of government contracting.”

Pentagon auditors have repeatedly accused KBR of artificially inflating costs under its troop support and oil infrastructure contracts in Iraq and Kuwait. The military reimburses KBR for all costs and then pays a fee of 1 percent to 7 percent of those costs. So, as the company’s costs go up, its profit from the military goes up, too. Critics say this arrangement provides an incentive for KBR to inadvertently or intentionally inflate costs that are ultimately billed to U.S. taxpayers. For example, the DCAA reported in 2004 that KBR billed the government for 36 percent more meals than it actually served to the troops, while an internal KBR investigation found that it had overbilled by 19 percent.

As with overestimating meals, it appears from the DCAA memo that KBR may be overestimating the required number of trucks it needs to perform its duties in Iraq. In order to confirm or deny this possibility, the memo says the DCAA sought company records to verify how often KBR trucks are utilized.

When auditors requested the mission control logs, which reveal how often each truck is used, KBR balked, saying it would be costly to compile such data. Specifically, KBR said it would take 750 labor hours to compile the data for 29 of the trucks under review, the memo reveals.

As an alternative, KBR offered the “vehicle dispatch records.” But, again, this proved insufficient since, as the memo states, “KBR only provided dispatch records for 22 of the 29 selected vehicles, and six of the records provided were maintenance logs, not dispatch logs, with no mileage or other utilization information.” Other dispatch logs requested by the DCAA “would require a manual search” at several locations and “would take time,” KBR is quoted in the memo as saying.

DCAA also requested from KBR the contractually required vehicle situation reports, which do not contain information about individual vehicles, but rather the total number of vehicles at each location and whether they are being used on any given day. When the DCAA told KBR that the situation reports “appeared to indicate low utilization of vehicles,” the company responded by downplaying the accuracy of the reports, which it described as “fluid” documents that are “changed frequently” and were “never created for audit purposes.”

In the memo, the DCAA official concluded: “The failure to properly analyze the utilization of existing vehicles makes it impossible to accurately estimate the number of vehicles needed for the contract, resulting in increased costs to the government as KBR procures and retains excess vehicles.”

Critics have complained that Halliburton purposely uses an antiquated bookkeeping system in order to encourage inadvertent overcharges. One KBR whistleblower testified before Congress that the company’s “manual accounting system” is unnecessary and that “there’s no reason in the world why Halliburton can’t do real time data management.”

In 2004, Halliburton admitted in an internal company memo, leaked to the Wall Street Journal, that its cost controls for government contracts are “antiquated” and “weak” and its procurement “disorganized” and marked by “weak internal controls.”

Early in 2005, the Pentagon ignored heated criticism from its own auditors and reimbursed KBR for most of the costs that were disputed by the DCAA. The military reimbursed KBR for $1.8 billion in costs that the company still cannot verify or substantiate. In May 2005, the Pentagon paid $72 million in bonuses to reward Halliburton for its work in Iraq and Kuwait.

Port Louis, Mauritius - Sugar has long been the sweetener in Mauritius' global trade. But now the island faces an unpalatable fight to keep the industry going in light of a recent European Union (EU) proposal to cut sugar prices to African, Caribbean and Pacific (ACP) countries.

The European Commission (the executive arm of the EU) plans to slash sugar prices by 39 percent over the next four years. Beginning in 2006, this will lead to a drop from about $630 per ton of sugar to just over $390.

The move responds to a World Trade Organization (WTO) ruling, following a complaint from the United States and other countries, that the above-market prices paid to European sugar producers in ACP countries - largely former colonies to which Europe has given preferential trade treatment as a modest means of restitution - constituted unfair trade.

However, Mauritians aren't taking these developments lying down.

"'Yes' to reforms, but not [those which are] brutal and devastating," says Mauritian Agro-Industry Minister Arvin Boolell, who is also a spokesperson for the ACP group of sugar-producing nations.

"The current proposals spell disaster for our countries. They will put in jeopardy the livelihood of hundreds of thousands of small poor farmers and workers who do not have any other alternative source of revenue, nor can they profitably grow alternative crops," he says.

ACP countries sell about 1.5 million tons of sugar annually to the EU under the so-called Sugar Protocol that dates back to 1975. At present, Mauritius exports about 500,000 tons of sugar to Europe; this accounts for 17 percent of the island's export revenue.

The ninth ACP ministerial sugar conference, held in September 2005 in Kenya and attended by a1176 member states who are signatories to the Sugar Protocol, resolved to continue efforts to fight the EU decision.

"The protocol is a time-tested tool that has helped countries like Mauritius in [their] social and economic development," says Boolell, adding that the effects of sugar reform could run contrary to efforts by the Group of Eight (G-8) industrialized nations to reduce poverty and under-development In July 2005, the G-8 met in Gleneagles, Scotland for a summit that focused largely on Africa, resulting in debt relief and a $50 billion increase of aid to the continent.

The EU shows little inclination to maintain the sugar deal, but has pledged almost $48 million to compensate ACP countries for the losses they are likely to incur. Some nations are pressing for this amount to be doubled in 2006, the first year of price cuts.

Promises of aid mean little to farmers like Jugdutt Rampersad, however. As with many landowners in Mauritius, he has received a stable income from sugar production for the past 30 years. Now, perceiving the industry to be on the brink of collapse, he is no longer willing to invest in his sugar cane fields.

"There is no way out. The sugar industry will die a slow death because production costs - manpower, transport, fertilizers, herbicides and others - will keep on increasing year by year while revenue will decrease," he says. About 20,000 small farmers may be forced to abandon their land, or sell it for industrial or housing purposes.

Guirdharry Jugessur, chair of the Mauritius Cooperative Agricultural Federation, also sounds despondent. "We'll have to face it [industry change], but how? I do not know. Perhaps by reducing production costs and improving productivity," he says.

In 2001, Mauritius launched the Sugar Industry Strategic Plan to cut down on production costs in the sector. It has also reduced the number of sugar factories from 17 in 1997 to 11 in 2002 - a number that is expected to drop still further to seven or eight by 2008. The remaining factories arc being modernized to allow them to crush more cane.

Some 10,000 employees have been laid off under a voluntary retirement scheme during the past four years, allowing the industry to reduce money spent on salaries by 25 percent.

There have been proposals for vegetables to be cultivated between the rows of sugar cane, to make land more productive. In addition, farming of sugar is becoming more mechanizcd -while irrigation facilities are being introduced in certain regions, particularly in the north of the island, to improve sugar yields.

Electricity is also being produced from bagasse, a residue of sugar cane, and charcoal; this power accounted for 40 percent of Mauritius' electricity consumption in 2004. A company called Alcodis is producing ethanol from the cane, while another firm, Chandni Oil, is planning to start a similar operation in November.

Chandni Oil plans to produce 30,000 tons of ethanol annually to export to African countries. It also wants to mix ethanol with fuel to run cars on the island.

It has taken about 200 years to transform Mauritius, a volcanic island, into a sugar producer. In the process, nationals have benefited from the guaranteed prices paid under the Sugar Protocol, which are set at least three times higher than those on world markets. Now that cultivated dependence on sugar has been ruled "WTO-illegal," the price will be paid by Mauritians and others in ACP countries, not the Europeans who lost the WTO case.

The November/December Lawrence Summers Memorial Award* goes to the Pharmaceutical Research and Manufacturers Association (PhRMA).

The trade association wins recognition for commissioning — or at the very least, lending support to — a thriller novel that would highlight the alleged horrors of importing drugs from Canada into the United States.

Among those contributing to the project ... Jayson Blair, the disgraced former New York Times reporter fired for committing fraud. Also involved in the scheme was Mark Barondess, a divorce lawyer who represents CNN host Larry King and consults for PhRMA.

At least after it became public, PhRMA abandoned the idea.

"We did not commission a book," Ken Johnson, PhRMA’s executive vice president told the New York Daily News. "The idea was brought to us by an outside consultant. We explored it, provided some background information ... but in the final analysis, decided it wasn't the right thing for us to do."

Sources: Lloyd Grove, “Drug Business Prescribes a Novel Cure for Its Ills,” New York Daily News, October 17, 2005; Ellen Florian Kratz, “Canadian Drug Scare That Never Was,” Fortune, November 2, 2005.

*In a 1991 internal memorandum, then-World Bank economist Lawrence Summers argued for the transfer of waste and dirty industries from industrialized to developing countries. “Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?” wrote Summers, who went on to serve as Treasury Secretary during the Clinton administration and is now president of Harvard University. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. ... I’ve always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City.” Summers later said the memo was meant to be ironic.